Pre-IPO Meetings and Analyst Consensus Building

54 Pages Posted: 28 Apr 2021

See all articles by Shunyao (Cynthia) Jin

Shunyao (Cynthia) Jin

University of Michigan at Dearborn, College of Business

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business

Isabel Yanyan Wang

Michigan State University

Date Written: April 26, 2021

Abstract

We examine whether the consensus among affiliated analysts covering IPO firms changes after the 2012 Jumpstart Our Business Startups (JOBS) Act. The JOBS Act allows only affiliated analysts to attend pre-IPO meetings with managers of IPO firms that qualify as an Emerging Growth Company (EGC). Much of the information from these meetings is likely to be verbal and non-verbal cues from managers. While verbal and non-verbal cues contain value-relevant information, it is not clear how their high degree of subjectivity affects analyst consensus building. Using a sample of 660 IPOs during 2004-2016, we find that the dispersion of affiliated analysts’ initiation forecasts is significantly higher and is associated with larger post-IPO return volatility for EGCs than for similar IPOs prior to the JOBS Act. These findings do not extend to unaffiliated analysts covering EGCs. Further analysis suggests that variation in social connections may contribute to the higher dispersion among affiliated analysts after the JOBS Act. Our findings indicate that having privileged access to EGC management through pre-IPO meetings allows affiliated analysts to form highly subjective assessments, which may have the unintended consequence of contributing to increased information uncertainty for EGCs.

Keywords: IPO, pre-IPO communications, analyst forecast dispersion, information uncertainty, JOBS Act

Suggested Citation

Jin, Shunyao (Cynthia) and Kimbrough, Michael D. and Wang, Isabel, Pre-IPO Meetings and Analyst Consensus Building (April 26, 2021). Available at SSRN: https://ssrn.com/abstract=3835203 or http://dx.doi.org/10.2139/ssrn.3835203

Shunyao (Cynthia) Jin

University of Michigan at Dearborn, College of Business ( email )

4901 Evergreen Road
Dearborn, MI 48128-1491
United States

Michael D. Kimbrough (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States
301-405-8222 (Phone)
301-314-9414 (Fax)

Isabel Wang

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.msu.edu/~wangyany/

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